TPG sells 4.5 percent stake to sovereign funds: source

By Megan Davies

NEW YORK (Reuters) – Private equity firm TPG Capital (TPG.UL: Quote, Profile, Research) is selling a 4.5 percent stake in itself to two sovereign wealth funds, in Singapore and Kuwait, a source familiar with the situation said on Friday.

TPG is the latest private equity firm to turn either to the Middle East or Asia for capital, and selling a stake will likely raise questions about whether TPG eventually wants to follow a handful of its rivals in going public.

The deal values TPG at $10 billion, said a separate source familiar with the situation.

Blackstone Group (BX.N: Quote, Profile, Research) went public in 2007 after selling a stake to a Chinese sovereign fund, Kohlberg Kravis Roberts & Co (KKR.N: Quote, Profile, Research) listed in 2010, and Apollo Global Management (APO.N: Quote, Profile, Research) made its debut on the New York Stock Exchange this week.

Carlyle Group may also file papers to go public later this year, a source familiar with the matter previously said.

A source close to TPG previously told Reuters that the firm had no plans to go public.

TPG told its investors about the stake sale in a letter dated March 31. It said that it had “completed a private sale of a small, passive minority economic stake” in TPG. The letter, obtained by Reuters, did not specify who the buyers were.

The sovereign wealth funds investing are the Kuwait Investment Authority, one of the largest sovereign funds in the Gulf, and the Government of Singapore Investment Corp (GIC), the source said. It was unclear how much each fund would buy of the 4.5 percent of TPG that is being sold.

“The equity capital raised in this transaction will… be used to fund the expansion of existing business lines and general partner investments, and to help fund the growth of firm-wide operations,” said the letter.

TPG’s letter also said it has consolidated, refinanced and expanded its existing credit lines.

“These transactions are purely financial in nature – there will be no change in the firm’s operations and strategy and the investors will have no governance role whatsoever in the firm,” the letter said.

TPG declined to comment, while representatives of the Singapore and Kuwait funds were unavailable to comment.

The deal puts TPG’s value close to KKR’s, which has a market capitalization of about $11 billion. Apollo had a value of about $7 billion at the time of its IPO this week. All are dwarfed by Blackstone, which is valued at about $20 billion.

TPG, founded in 1992 and run by founding partners David Bonderman and James Coulter, has more than $47 billion of capital under management. It has offices around the world, including Singapore, according to its website.

SOVEREIGN WEALTH FUND INTEREST

Rivals Blackstone and Carlyle have had sovereign wealth fund investors for several years.

Abu Dhabi bought a $1.35 billion stake in Carlyle Group in September 2007, and sovereign wealth fund China Investment Corp owns 10 percent of Blackstone.

CIC’s investment in Blackstone has fared poorly. It bought in just before Blackstone went public in 2007 at $31 a share. Blackstone’s shares are currently trading at $18.01, although they have rallied from a low of below $4.

TPG and GIC have invested together in deals in the past. In December, TPG and GIC bought a stake in Indonesian coal contractor PT Delta Dunia Makmur for $331 million.

GIC, which is estimated to have a portfolio of more than $200 billion, said in February the United States would continue to be a prime investment destination for years to come.

Tony Tan, GIC’s deputy chairman, said recently that despite global economic rebalancing and rapid growth in China and other emerging economies, the United States would remain the “single most important source of global prosperity.”

GIC’s key investments include a substantial stake in Citigroup (C.N: Quote, Profile, Research), which it helped rescue in the aftermath of the financial crisis. According to Reuters data, it is the biggest shareholder in the U.S. bank with a 3.86 percent stake.

According to GIC’s last annual report, issued in September, the United States accounts for 36 percent of its investments, the highest of any country.

(Additional reporting by Saeed Azhar in Singapore and Eman Goma in Kuwait; Editing by Gerald E. McCormick, Gary Hill and Tim Dobbyn)

TPG sells 4.5 percent stake to sovereign funds: source